Unlocking the potential of a streamlined and efficient accounts receivable process is critical for finance teams burdened by paperwork, manual tasks, and fragmented data sources. If your accounting processes are still in the manual era, this article will help you upgrade your team with a digital approach.
Is your accounts receivable (AR) process slowing you down? Finance teams of all sizes are drowning in paperwork, manual tasks, and disparate data sources. These broken processes hold teams back by limiting capital efficiency and liquidity and decreasing your time, revenue, and efficiency. Due to poor billing and AR processes, businesses can lose up to 25% of revenue from new sales.
Digitizing the AR process can streamline your operations and solve several challenges. Finance teams have doubled their output while reducing overhead costs by 33% using a digital approach. Executives have been laying the ground for a digital AR strategy that leverages digital payments and automation.
This change has not been sudden. The importance of digitizing business processes has grown steadily over the last few years. However, the way it has changed AR processes has been significant.
If your accounting processes are still in the manual era, this article is for you. Continue reading and learn how to upgrade your team with a digital accounts receivable process.
Digitizing your AR process saves money. It can also speed up your collections, reduce late payments, and reduce 70% of the repetitive tasks taking up your team's time and resources. The more you do to streamline your operations, the better it is for your cash flow and bottom line.
Yet, most companies have back-end accounting operations that don't keep up with their growth:
If you identify with any of these challenges, it's time to consider a digital approach.
Do your customers ever ask you to resend an invoice because they "didn't receive it" or "didn't notice that the bill was due"? Companies often rush to improve AR metrics like DSO without considering their collections activities. A lot of money is lost between an invoice being delivered by mail or a customer realizing that an invoice mistakenly landed in their spam folder.
This can be easily solved with an AR automation solution. It allows to easily tie all data together and track and report it at the account level. This gives teams a general view of collected and pending receivables so an invoice never goes unprocessed, unapproved, or unpaid, removing friction from the payment process to get paid faster.
Reducing DSO or past due invoices is a common goal for any AR team. It's in the company's best interest to collect outstanding receivables as quickly as possible, but how to balance the time it takes to chase down delinquent accounts with the rest of the responsibilities?
Automating the collection process allows the elimination of manual efforts to refocus on high-level tasks like forecasting and strengthening relationships with customers.
One benefit of digitizing processes is analytics and reporting. It gives hyper-specific analyses, drilling into individual accounts and assigning risk profiles to routinely late payers.
About 86% of organizations submit invoices by paper; some still send them via fax. That means paper handling, envelope stuffing, scanning, and shipping work for one small yet important aspect. A digital AR process can cut processing costs by up to 70% by eliminating the repetitive manual tasks taking up time and money.
Financial teams' labor costs are high, but digital tools can easily reduce them by up to 98%. Considering that a company processing a thousand monthly checks can leave over $500,000 on the table, it's a no-brainer. That's why automation is a game-changer for businesses with tight margins.
Without an efficient and accurate invoicing process, cash flow can decrease. This can stunt growth, increasing risk and hurting businesses' overall health. If your invoicing process is manual, there are several ways you can benefit from switching to a digital process:
As robust as a digital AR process can be, success depends on integrating this into day-to-day accounting operations. Taking the proper steps can set you up for a smoother transition and a more effective implementation.
These three keys contribute to the best possible outcomes for your team:
Let's say your current process is entirely manual and paper-based. Each month, an AR clerk reviews each customer record and prints a paper invoice based on products or services purchased. They pop each one into an envelope and put it in the mail. They check the mail for invoice payments daily and manually record them in a spreadsheet. They handle inbound phone inquiries on invoice errors and make outbound calls to delinquent payers.
Imagine your company sticking to this manual process and having to hire one person for every invoice the company sends. You can see how that kind of headcount strategy stays the same. And there's room for error with all those manual steps.
Digitizing AR takes a big chunk of work off the staff's plate, reduces paper processing costs, decreases the margin for error, and speeds up payments. Consider the digitized process:
As a business grows, incremental time savings, reduced processing costs, more fluid cash flow, and decreased possibilities for error contribute significantly to the company's financial health. This can mean the difference between a new funding infusion or business expansion - or none at all.
Don't get me wrong: digitizing all the inputs associated with AR is your best first step - but there are other steps. Here are a few examples of what it would be like to digitize without automation:
Automation is the next step on the journey to digital transformation. It ties all the disparate online inputs together, removing yet another layer of manual work.
In the case of Paystand customer Elenteny Imports, invoices are auto-generated and sent to customers with a link to pay now using a variety of online payment processors. Customer payments are tied directly to invoices, and incoming payments are immediately reconciled. Human intervention is the exception, not the rule.
After digitizing AR records and automating processes, it might seem like finance leaders can let AR run on auto-pilot. While this is partially true, the drastic reduction of manual, low-value AR work also represents a huge opportunity: the ability to drive positive change throughout the business using actionable receivables data.
Reviewing available AR data in online reports can help answer the following questions:
The answers to these questions can help the business become even more financially healthy - an attractive attribute for investors, board members, and potential employees. And finance leaders can take the data they already have and circulate it to other stakeholders. What impact would it have on sales, marketing, customer service, or business development if the AR team could unlock new revenue sources, improve cash flow, and reduce DSO?
Working cross-functionally to support different departments can improve outcomes company-wide. Just ask Paystand customer Choozle: their digital transformation led to a 50% drop in receivables over 90 days and a one-third reduction in DSO. And they cut their closing time in half - a big win for board members who want financial documents fast.
The wide-ranging benefits of having a digital Accounts Receivable process are clear. However, it's more complex than flipping a switch - otherwise, we'd all have done it already. Research, goal-setting, planning, and execution must occur to transition successfully.
To start mapping out your current processes and developing your digital AR strategy, check out our Free guide: The Controller's Guide to B2B Payment Optimization. Using this guide, you'll better understand what's working (or not working) and what you'd like to change.